Commodities prices fall as stock market experiences wild swings - 20-Mar-08 - Generational Dynamics

Generational Dynamics Web Log for 20-Mar-08

Commodities prices fall as stock market experiences wild swings

Remember ages ago (i.e., last week) when things looked "normal"?

The stock market has exhibited extreme volatility and wild swings during the last few days, amid unprecedented events -- several hedge fund failures, a major investment bank failure and historic Fed interventions.

Commodities investors have begun to express caution as prices suddenly collapsed on Wednesday, breaking a very long period of bubble-like increases:

"Corn futures for May delivery fell the 20-cent maximum allowed by the Chicago Board of Trade, or 3.7 percent, to $5.2725 a bushel, the biggest percentage drop since Jan. 23. Most-active futures before today had gained 37 percent in the past year, reaching a record $5.795 on March 11 on rising demand for corn-based ethanol and livestock feed.

Soybean futures for May delivery fell 50 cents, or 3.6 percent, to $12.57 a bushel in Chicago. The exchange's limit for gains or losses in soybeans is 50 cents. The price has fallen 21 percent since reaching a record $15.8625 on March 3. Still, most-active futures have risen 66 percent in the past year after U.S. farmers planted the fewest acres in 12 years.

Gold futures in New York plunged $59, or 5.9 percent, to $945.30 an ounce, the most since June 2006, after the Federal Reserve cut U.S. borrowing costs less than investors expected yesterday. Gold reached a record $1,033.90 on March 17. Crude oil fell as much as 4.5 percent to $104.48 a barrel in New York. The most-active contract reached a record $111.80 on March 17."

There have been "waves of selling," according to the article, as hedge funds that have used leverage to purchase large commodities positions are now deleveraging, in advance of a possible bubble collapse.

Many investors are pulling out the market into the safety of Treasury bills, causing the yield on 3-month Treasuries to fall to 0.47% from 0.79% a day earlier, and 6-month Treasuries to fall to 1.1% from 1.24% a day earlier.

Pundits on CNBC were saying that they've never before seen anything like what's going on now -- especially the wild swings in all markets.

A web site reader wrote to me that she's lost a fair amount of money on her futures contracts in the last two days because of "Bernanke's clever fixes."

I admire people with such strong stomachs that they're even ABLE to deal with these kinds situations. This is not for the faint of heart.

I continue to strongly advise against getting into the short or futures markets.

Keep in mind that there may be a major financial crisis at any time, causing a domino effect of bankruptcies. In that case, investors could lose their escrow accounts or be unable to collect from counterparties.

Right now, about the only thing that makes sense is cash.

There is a little bit of good news in this: With commodity prices falling, the cost of wheat, corn and soybeans is falling, which may mean that a few million more people in the world may be able to afford to eat, at least for a while. (20-Mar-08) Permanent Link
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Generational Dynamics Web Log for 20-Mar-08 Commodities prices fall as stock market experiences wild swings

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Generational Dynamics Web Log for 20-Mar-08
Commodities prices fall as stock market experiences wild swings